Financial Stability

Last week, the Federal Reserve Bank of Dallas issued a special report, Financial Stability: Traditional Banks Pave the Way, calling for an end to "too big to fail" policies and proposing that traditional banking models are the only hope for a recovery of confidence in the American banking system.

In his introduction to the report, Richard Fisher, President and CEO of the FRB Dallas, offered thought-provoking analysis of the industry's current status, and asked questions of its future: "When it comes to our financial sector, we've seemingly stumbled into a place where we never wanted to be. Just as disturbing, we don't know how to get out. Do we simply accept that big banks will get bigger? Do we try to rein in their excesses through all-encompassing regulation, even if it risks burdening small and medium-sized banks that had little to do with the financial crisis? Or do we dedicate ourselves to creating a diverse financial system in which no bank is too big to fail?"

The report consisted of five essays, penned by Dallas Fed economists, on the theme of rethinking America's banking system.  Each part can be found here:

CFPB Final Rule

The CFPB issued this final rule[i]
to implement the Dodd-Frank Act's amendments to the Truth in Lending
Act and the RESPA. The final rule amends Regulation Z by expanding the
types of mortgage loans that are subject to the protections of the Home
Ownership and Equity Protections Act of 1994 (HOEPA), revising and
expanding the tests for coverage under HOEPA, and imposing additional
restrictions on mortgages that are covered by HOEPA, including a
pre-loan counseling requirement. The final rule also amends Regulation Z
and RESPA by imposing certain other requirements related to
homeownership counseling, including a requirement that consumers receive
information about homeownership counseling providers.

The rule is effective January 10, 2014.

MLK Holiday Hours

The IBAT offices will be closed on Monday, January 21, 2013. Regular business hours will resume on Tuesday, January 22. Due to the holiday, our weekly eNewsletter, Bottom Line, will be published on Wednesday next week.

Survey Results

AUSTIN, Texas (January 8, 2013) - According to Abound Resources' recent survey of community bank executives, CEOs of community banks are much more pessimistic going into 2013 than they were going into 2012.  The primary driver of the pessimism is an increasingly difficult regulatory environment. 

In 2012, despite uncertainty about the economy and regulations, CEOs felt they could plan for the impact of regulations.  However, going into 2013 they are concerned about increasing regulations, uncontrolled powers of the Consumer Financial Protection Bureau (CFPB) and increasing inconsistency among bank examiners.

"This year CEOs are decidedly more pessimistic than they have been since we launched our annual survey four years ago," said Brad Smith, President and CEO of Abound Resources. More than one-third (36%) of bank CEOs report they are either very or somewhat pessimistic about their bank's outlook for 2013. In 2012, only 21% were pessimistic and none were very pessimistic. Only about one-quarter (28%) are optimistic or very optimistic about 2013, compared to 45% in 2012.

Other major issues of concern are a weak economy and loan demand.  Both of these factors were mentioned by 67% of CEOs as major concerns in 2013.

In terms of setting growth priorities for 2013, growing commercial loans, growing mortgages and mortgage originations and increasing market share among the small business segment were the top three.

On the operating side of the equation, priorities are consistent with prior year surveys in that streamlining work flows and increasing operational and technology efficiencies are the primary focus. 

2013 is the year of workflow improvements. In 2012, streamlining workflows was cited by 45% of CEOs as a priority, second to improving efficiency ratios and becoming more efficient (64%). This year, workflow is the number one efficiency and cost saving priority for CEOs (60%), followed closely by improving the efficiency ratio (58%). According to Brad Smith, President and CEO of Abound Resources, "There is a built-up demand for improving workflow since so few banks made workflow improvements last year. Workflow improvement projects are tricky as middle management is often resistant to changing how they work, or they don't know how to make changes beyond a few tweaks."

A complimentary copy of a White Paper analyzing the complete survey results is available for download at


TechMecca 2013

us next Monday and
Tuesday, January 21-22
, at the Omni Fort Worth Hotel for the
11th annual TechMecca Technology Conference & Expo.

TechMecca is the largest regional community bank technology show, but this
year's show has an expanded emphasis on the C-O-R-E issues affecting community banks:

C -
O -
R - Risk
E -
Enterprise Efficiency

TechMecca features nationally-acclaimed speakers Joe Calloway and Jim Van Dyke,
two of today's most dynamic and sought-after speakers. They will help you work
out the challenges of your own business and personal relationships.

levels of officers, management and employees are invited to attend the 2013
event in Fort Worth.

83rd Texas Legislature

The 83rd Texas Legislature
convened last Tuesday, January 8, and will consume much of our time and
attention over the now 133 remaining days (not that anyone's counting).
Yesterday, IBAT sent out the first of our weekly IBAT Legislative Insider
newsletters to keep you updated throughout the session.  However, there
are several things you can do to be involved throughout the session.  Please
consider the following: 

  1. Sign up
    to attend IBAT's Community Banking Day at the Capitol, March 5-6 in
  2. Register
    to receive Legislative Action Alerts from IBAT via text
    message.  We promise not to misuse your information by giving it to
    anyone else, market to you or otherwise "cry wolf" during the
    legislative session. Our texting service is reserved for the rare
    instances when a quick, large-scale response is needed from the IBAT
  3. Consider
    holding a PAC drive in your bank.  A strong
    political action committee makes IBAT more effective in advocating for the
    issues that are important to your bank.  Contact Mae Beth Palone at mbpalone@ibat.org if you need
    more information.

Leadership Division Region 9

join your IBAT colleagues and Leadership Division members in the Houston and
surrounding area on January
for an Educational Forum: Opportunity, Risk &
Regulatory Implications in 2013 featuring guest presenters:

  • Kurt
    Purdom, Director, Bank and Trust Supervision, Texas Department of Banking
  • Dr.
    James Bexley, Sam Houston State University School of Banking
  • Robert
    Hoag, Doeren Mayhew Financial Institutions Group

meeting will be at Integrity Bank, 4040 Washington Avenue in Houston and is
sponsored by Integrity Bank and Doeren Mayhew Group.

register, click here.

Silver Alerts




Andrews Police Department is searching for William L Townsley, diagnosed with an
Altered Mental State, WHITE, MALE, 72 years old, DOB 09/25/1940, HEIGHT 5' 3",

The senior
citizen was last seen at 0400, 01/13/2013 at 1010 NW 8TH STREET,
driving a SILVER, 2010 TOYOTA TACOMA with TX License Plate BL43900.

enforcement officials believe this senior citizen's disappearance poses a
credible threat to HIS/HER own health and safety.

If you have
any information regarding this missing senior citizen, contact the ANDREWS
POLICE DEPARTMENT at 432-967-0657.

News Media
Point of Contact is
POLICE DEPARTMENT at 432-523-5545.





with Alzheimer's, WHITE,
MALE, 80 years old, DOB 01/28/1932,
WEARING DARK BLUE JACKET, BLUE JEANS, WHITE TEE SHIRT UNDER BROWN SHIRT.                                                                                           

The senior
citizen was last seen at 2015, 01/15/2013 at BRIANWOOD AND

enforcement officials believe this senior citizen's disappearance poses a
credible threat to HIS/HER own health and safety.

If you have
any information regarding this missing senior citizen, contact the MIDLAND POLICE DEPARTMENT at 432-413-5021.

Media Point of Contact is
DEPARTMENT at 432-413-5021


Secure Loans

All IBAT member banks make loans secured by real estate (both commercial and residential), and a substantial portion of those loans are kept "in-portfolio." Additionally, many of these loans do not have an escrow arrangement for insurance and taxes. As property tax due dates are right around the corner, we wanted to make sure you were "covering your bases" with your customers responsible for paying their own taxes, especially with respect to tax lien loans.

In recent years, there has been a proliferation of entities and individuals offering "tax lien loans." In many cases, these companies scour the tax records, and solicit those who have not yet paid their property taxes. While improvements have been made to this situation over the past several legislative sessions, there are still some significant pitfalls for you as a lender.

First and foremost, these lenders take a priority lien position in the property just as if they were the taxing authority. Your collateral value will clearly be diminished in virtually all of these situations. The loans generally are at high interest rates, and come with hefty fees, potentially impacting your borrower's ability to repay. Thus, both your customer and your bank will be adversely affected if such a loan is used for taxes.

While most of you already have a good system in place, please consider some or all of the following actions to mitigate some potentially expensive problems:

Procedures should be in place to annually contact your residential and commercial real estate loan customers (as necessary) to remind them that evidence of paid taxes is a requirement of the loan covenants. This is especially important if there are indications (late or missed payments, overdrafts, etc.) of financial problems. You may also wish to advise them that if they are having potential problems paying the taxes due, they should visit with their loan officer to discuss possible options, like adding the taxes on to their existing loan. Additionally, you might wish to remind them that allowing a priority lien to be imposed on the property (such as a tax lien) violates one of the promises in the deed of trust, and is an event of default;

If you send payment notices or periodic statements, you might consider a notice on some or all of these stating that third party property tax lien transfers create a priority lien on the property and violates the loan agreemen;

Please remember that evidence of taxes paid does not disclose the source of the funds utilized to pay said taxes. If your customer has contracted with a tax lien lender, there is simply no way to tell other than to check the public records. A notice of tax lien transfer must be sent to the first lien holder of record under state law, but only "after the fact"; and

Your home equity loan portfolio is obviously also subject to risk in this area.

Proper procedures and proactive measures can clearly alleviate potential problems and unnecessary diminution of collateral values. Tax lien lenders are licensed and regulated by the Office of the Consumer Credit Commissioner, 512/936-7600 or feel free to call Shannon Phillips at IBAT (800/749-4228) if you have questions or comments.

CFPB Mortgage Rules

By Kevin Dobbs, Senior Reporter
and Columnist for SNL Financial

New mortgage rules outlined Jan. 10 by the Consumer Financial
Protection Bureau won the cautious and at least partial backing of lender
advocacy groups that had for months trumpeted concern that the regulator would
overreach with its definition of a so-called qualified mortgage and crimp the flow of
credit at the community bank level.

The Independent Community Bankers of America said CFPB's final
rule on consumers' ability to repay mortgages wisely includes accommodations
for community banks. The tightened qualified mortgage rule includes a legal
safe harbor and, under that standard, says certain balloon-payment loans made
by small lenders in underserved rural areas can
count as qualified mortgages.

"ICBA and the nation's community bankers have been strong
advocates for tailored rules that will address the problem actors in the
mortgage industry while not inhibiting community banks' ability to provide
mortgages to their customers," ICBA President and CEO Camden Fine said in
a statement emailed to SNL.

"Excessively rigid rules would threaten to force community
banks out of the mortgage market, making it harder for Main Street consumers to
get a home loan and slowing the nation's housing recovery," he added.
"ICBA appreciates CFPB's recognition of community banks as common-sense,
relationship lenders that help their communities thrive."

Under the new rules, lenders who follow the
standards for a qualified mortgage - such loans cannot go to
borrowers who would have a total debt-to-income ratio of more than 43%, cannot
exceed 30 years, cannot carry fees that add up to more than 3% of the loan
amount, and cannot have interest-only payments and other risky features that
have imperiled homeowners - will be shielded from legal action should a
borrower ultimately struggle to pay off the loan.


Loan & Deposit Pricing

By Jim Smitherman

For the majority of traditional community banks, over 90% of
earnings are driven by net interest income.  In a bank with assets of $500
million, a change of just 10 basis points in net interest spread represents
approximately $500 thousand in net revenues; a change of a single basis point
(.0001) will impact the bottom line by $50 thousand.

Since small, seemingly insignificant pricing variations can
affect a bank's bottom line so dramatically, a system to create real commercial
loan pricing discipline within an institution has become essential.  In
fact, along with a relentless focus on asset quality and service excellence,
pricing discipline must be part of every bank's DNA.  The fact remains,
many banks are still being driven by winds of competitive pressures, the
product of the day, or the informal whims of the CEO or the board.

Based on my discussions with other community bank CEOs, I
believe that over half of all community banks have no formal process to
determine interest rate pricing based on required yields/rates necessary to
achieve the banks' specific profitability goals.  Pricing models have been
around for years; however many community banks continue to neglect the
discipline a model brings to interest rate pricing.  In the past, I have
engaged in the same "seat-of-the-pants" pricing, which did not serve me or the
institution well.

Superior performance requires a deliberate approach to
pricing with constant fine tuning and consistent looks back.  Models are
the tools to achieve pricing consistency.  Without a model built around
the bank's desired return, consistent pricing is impossible over extended
periods of time.  I cannot stress enough the importance a pricing model
has on consistent long-term superior performance.

Here are some of the many lessons I have learned over the
past decade regarding loan deposit pricing:

  • A poor model is better than no model (the
    simpler the better).
  • Bankers without minimum return requirements tend
    to "give away the farm."
  • Bankers have the tendency to price at the
    minimum goal level. Pricing above the model minimum rate should be the
    goal and should be acknowledged and rewarded when achieved.
  • When the customer is the only person thanking
    the banker on the agreed upon rate, net interest spreads will tend to decline
    over time.
  • For most small businesses, "rate" does not rank
    in the top 5 of their major concerns but will still be a topic of some
  • To enhance the net interest spread, bankers have
    to be good negotiators. I have noticed, on occasion, many bankers would
    rather negotiate rate with the bank (their boss) than with the customer.
  • In fact, many bankers have the distorted belief
    they work for the customer and not the bank.
  • Multiple pricing options are always better than
    one. When the customer has choices, he feels empowered.
  • During times of rapid interest rate change,
    "seat-of-the-pants" pricing can be a bank earnings killer due to increased
    interest rate risk.
  • Providing "great service" does not automatically
    lead to better pricing but knowledgeable, professional bankers providing high
    quality customer service in a culture of strong pricing discipline will always
    be able to improve a bank's net interest spread over time.

Jim Smitherman is President/CEO of Security Bank, Odessa,

First American Payment Systems

Is growing Non-Interest Income one of your bank's objectives for 2013?  Perhaps you are also seeking to add more services for your current business customers while helping them control costs?  IBAT's newest Endorsed Service Provider can help you achieve these goals.

IBAT is proud to announce its endorsement of a merchant services provider that will offer you advanced products, customized marketing support, and increased fee income.  We urge our community bank members to attend this webinar and learn about how merchant services is the answer to higher non-interest income and stronger relationships with your business & commercial clients.

Please join us for this introductory webinar to learn more about your new Fort Worth-based Endorsed Service Provider for merchant services, First American Payment Systems. You will learn about their industry leading products and different relationship structures that will help you make 2013 a year of growth.

Date: 1/16/13
Time: 10:00am CT
Duration: 30 minutes
Presenter: Cody Yanchak, Director of Sales - Financial Institutions

Increased Lending

U.S. Treasury Department
Office of Public Affairs

January 8,

CONTACT: Treasury Public Affairs
(202) 622-2960


WASHINGTON - The U.S. Department of the Treasury yesterday released
a new report showing that Texas institutions receiving capital through the
Small Business Lending Fund (SBLF) continue to increase their small business
lending, in total by over $996.0 million over their baselines.

This Use of Funds report represents the sixth
consecutive quarter in which SBLF participants have increased lending to small
businesses and provides strong evidence that the SBLF program is working as
intended.  Across the country, SBLF participants have increased lending by
$7.4 billion overall and $740 million over the prior quarter.  Community
banks participating in SBLF have also increased business lending by
substantially greater amounts than a peer group of similar banks across median
measures of size, geography, and loan type.

"Community banks participating in the Obama
Administration's Small Business Lending Fund have consistently increased small
business lending over the past two years, resulting in increased access to
capital for thousands of small and family-owned businesses across the country,"
said Deputy Secretary of the Treasury Neal Wolin.  "With the help of
lending supported by SBLF, these small businesses continue to grow and create
jobs in their neighborhoods."

Small businesses play a critical role in the
U.S. economy and are central to growth and job creation.  In the aftermath
of the recession and credit crisis, small business owners faced
disproportionate challenges, including difficulty accessing capital.

The SBLF, established as part of the Small
Business Jobs Act that President Obama signed into law in 2010, encourages
community banks to increase their lending to small businesses, helping those
companies expand their operations and create new jobs.  Treasury invested
more than $4.0 billion in 332 institutions through the SBLF.
 Collectively, these institutions operate in over 3,000 locations across
48 states.  This report includes information on the 326 institutions that
continue to participate in the program as of September 30, 2012, including 275
community banks and 51 community development loan funds, or CDLFs.

SBLF encourages lending to small businesses by
providing capital to community banks and CDLFs with less than $10 billion in
assets.  The dividend or interest rate a community bank pays on SBLF
funding is reduced as the bank increases its lending to small businesses -
providing a strong incentive for new lending to small businesses so that these
firms can expand and create jobs.  As of September 30, 2012, the average
rate paid by community banks on SBLF capital was two percent.  Individual
community banks can reduce the rate they pay to one percent if they increase
qualified small business lending by 10 percent over their baseline.

To view the report, including a list of the
change in lending at banks receiving SBLF capital, please click here.

The SBLF is one part of the Obama
Administration's comprehensive agenda to help small businesses access the
capital they need to invest and hire.  Treasury also administers the State
Small Business Credit Initiative (SSBCI), which allocates $1.5 billion to state
programs designed to leverage private financing to spur $15 billion in new
lending to small businesses and small manufacturers. 

For more information on the Obama
Administration's small business initiatives, please visit www.sba.gov.  For more information on SBLF,
please visit www.treasury.gov/sblf.

Amber Alert


The Crosbyton Police Department is searching for Leah Marie Aguirre, Hispanic female, 2 YEARS old, DOB 1/6/11, brown HAIR, brown EYES with UNKNOWN

Police are
looking for "Miguel", Hispanic male, with brown HAIR
and brown EYES IN HER abduction.

The suspect
is driving a red Ford Focus.  The suspect
was last heard from in Crosbyton, TX

enforcement officials believe this child to be in grave or immediate danger.

If you have
any information regarding this abduction, call the Crosbyton
Police Department at (806) 368-1926.

News Media
Point of Contact is
Crosbyton Police Department
at (806) 368-1926.



ICS Webinar

the expiration of the Transaction Account Guarantee program on January 1,
community banks now face an additional challenge to retain their larger deposit
customers. The Insured Cash Sweep® service is best positioned to help you
retain the highest value relationships by identifying large-dollar,
safety-conscious customers and using ICSSM to meet your needs.

join IBAT Services and Promontory for a FREE webinar to learn more about how ICSSM
works and the various ways your bank can utilize the service to attract and
retain customers in addition to generating non-interest revenue.

Webinar details:
Chuck McBrayer, Regional Director

January 9th at 2pm CT OR
January 10th at 10am CT

ATM Requirements

received a Christmas present on December 20, 2012 when President Obama signed
H.R. 4367, which eliminates the requirement for physical notices on ATMs
regarding fees. That information is already disclosed onscreen, and consumers
can't continue a transaction without affirmatively acknowledging and accepting
the possible fee.

The notices were originally required when
onscreen disclosure was not always feasible. However, changes in technology
have resulted in consistent, effective disclosures to consumers.

Unfortunately, previous law included a penalty of
the lesser of $500,000 or one percent of the net worth of the ATM operator for
violating the notice requirement. This bounty led to instances of litigants
removing placards, photographing the ATM and filing a lawsuit before the ATM
operator is aware of the missing sign. A rash of class action suits have been

The question is whether or not this change is
retroactive. The Cox Smith litigation team has taken the position that there is
no basis for these lawsuits with the elimination of the statutory remedy. In
any event, we believe punitive damages should not be available, even in cases
alleging missing notices prior to the passage, and actual damages are
nonexistent since the consumer had notice of the fee and agreed to pay it.

The next step is for the CFPB to amend Regulation
E to eliminate the signage requirement in the absence of the supporting law.

For more information, please contact Karen Neeley, IBAT General Counsel at 512-703-6315.

SWGSB Bank Director Assembly

Southwestern Graduate School of Banking (SWGSB) has released information on its
136th Assembly for Bank Directors, entitled "Moving on in a New
Era."  The assembly will be held February 7-10, 2013 at the Atlantis
Resort in the Bahamas.

View the full assembly brochure or visit the SWGSB website.